Retailers look at East Coast contingency plans

Tuesday, August 28, 2012

With the peak holiday shipping season kicking into high gear, the nation’s largest trade association for retailers on Monday urged negotiators for the International Longshoremen’s Association and their employers return to the bargaining table.
Talks on a new master contract between the ILA and the U.S. Maritime Alliance (USMX), which represents employers, broke down last week, and Matthew Shay, president and chief executive officer of the National Retail Federation, said “now that there is a real risk of disruption, most retailers using the East and Gulf coast ports will be forced to execute contingency plans within the next week to meet in-store holiday deadlines. These plans carry great expense but they are necessary to avoid disruptions that will add costly delays to our members’ supply chains.
“We understand and recognize that there are tough issues that need to be resolved,” Shay said, but added they “will only be resolved, however, by agreeing to stay at the negotiating table until a final deal is reached. Failure to reach agreement will lead to supply chain disruptions which could seriously harm the U.S. economy.”
The current ILA-USMX contract, which covers dock workers from Maine to Texas, expires on Sept. 30.
In interviews with American Shipper, liner carriers and logistics companies said shippers may have few - or very expensive - alternatives.
Decisions about diverting cargo from Asia to vessels calling the West Coast instead of the East Coast or Gulf would have to be made within days, some suggested. And ships on transpacific services are in many cases full or close to capacity since this is already the height of the shipping season.
“Without saying it is too late, changing complicated international supply chains because of something that may or may not happen in five weeks is difficult. And you have to calculate the cost,” said an executive at one large forwarder.
Some freight forwarders said shippers may also find it difficult to obtain warehouse space, or truck or rail capacity to move cargo across the country if they want to bring cargo through West Coast ports.
Several liner carrier executives said they were caught by surprise by last week’s announcement that ILA-USMX talks had fallen apart less than a half hour after a three-day bargaining session was to begin.
“It was completely out of left field,” said one executive who said he has still not gotten a thorough explanation about why the talks broke off so quickly.
“They're going to have to find a way back to the table,” he said.
One forwarder said ILA President Harold Daggett’s talk of a strike might cause an increase in air cargo shipments, but air transport is likely to be viable for only a limited number of commodities both because of its high cost and limited capacity.
Still, if the choice for a company is to shut down an auto assembly plant or ship some parts by air, or move some high ticket retail goods or not be able to sell them at Christmas, shippers may choose air freight.
Executives at 3PLs and liner companies say they are loathe to recommend shippers reroute their cargo or use expensive alternatives such as air transport since negotiations could again turn on a dime.
“We have taken a strong position not to give guidance, but give alternatives,” said one forwarder executive.
“It’s all Kabuki theater,” said a liner executive. “There are a few more acts to go.”
He suggested the union is unlikely to go on strike and create more economic problems for the nation before the presidential election, saying it would create bad blood between the ILA and the Democratic party. Instead, he suggested the two sides may agree to extend negotiations and that any strike would come after the election.
Other executives interviewed by American Shipper predicted that if there is a strike, President Obama will quickly use his powers under the Taft-Hartley Act to declare a national economic emergency as President Bush did after the lockout of by employers of members of the International Longshore and Warehouse Union on the West Coast in 2002.
Meanwhile, the National Industrial Transportation League, the largest organization for shippers in the country, said in its Notice newsletter that the ILA-USMX impasse “places extraordinary challenges on many league members in deciding what steps they should consider in the event of a work stoppage following the current contract’s expiration on September 30, 2012.”
The NIT League said it was sending a survey to its members yesterday “to assist the league in communications with government and industry leaders on the potential economic and supply chain impacts that would come in the event of a work stoppage.”
The survey requests information from NIT League members on such things as potential impacts on their companies, contingency planning, and the estimated cost of a disruption. - Chris Dupin